The Supreme Court of India in the matter of Bank of Baroda Vs Farooq Ali Khan & Ors. has overturned a High Court ruling that halted personal insolvency proceedings against a guarantor under the Insolvency and Bankruptcy Code (IBC), 2016. The apex court emphasized the importance of adhering to the statutory framework of the IBC and restrained High Courts from prematurely intervening in proceedings before the Adjudicating Authority.

The case centered on a personal insolvency petition filed by a consortium of banks against a former director and guarantor of Associate Dcor Limited, a corporate debtor. The Adjudicating Authority, following the prescribed procedure under Section 95 of the IBC, appointed a resolution professional to examine the petition and submit a report.

However, the High Court, in response to a writ petition filed by the guarantor, intervened and quashed the insolvency proceedings, holding that the guarantor’s liability had been waived. The Supreme Court, in its recent judgment, set aside this ruling, emphasizing that the High Court had overstepped its jurisdiction.

Key Legal Principles Affirmed:

• Statutory Procedure: The Supreme Court reiterated the importance of following the statutory procedure laid down in the IBC. It highlighted that the role of the resolution professional under Section 99 is to gather information and submit a report, and that the Adjudicating Authority's adjudicatory function under Section 100 commences only after this report is submitted.
• No Premature Adjudication: The court clarified that the Adjudicating Authority is not required to adjudicate on jurisdictional issues, such as the existence of debt, before appointing a resolution professional. These issues are to be examined by the resolution professional and subsequently adjudicated by the Adjudicating Authority.
• Limited Judicial Review: The Supreme Court emphasized the limitations of judicial review under Article 226 of the Constitution, particularly when statutory tribunals are constituted to adjudicate specific matters. It cautioned against High Courts substituting their judgment for that of the Adjudicating Authority, especially at preliminary stages of the proceedings.
• IBC as a Complete Code: The court reiterated that the IBC is a comprehensive code with sufficient checks and balances, and that High Courts should exercise restraint in interfering with its proceedings.

Impact of the Judgment:

The Supreme Court's decision reinstates the personal insolvency proceedings against the guarantor, directing the Adjudicating Authority to proceed from the stage of the resolution professional's appointment. The judgment reinforces the integrity of the IBC's statutory framework and sends a clear message that High Courts should refrain from premature intervention in insolvency proceedings.

This ruling underscores the importance of allowing statutory processes to take their course and reaffirms the specialized role of the Adjudicating Authority in insolvency matters. It also highlights the need for judicial restraint in exercising writ jurisdiction, particularly in matters governed by comprehensive statutory regimes like the IBC.

INSOLVENCY AND BANKRUPTCY CODE, 2016